MEHROTRA C.J. - In pursuance of the order of this court the following questions of law have been referred to us for opinion by the Income-tax Appellate Tribunal, Calcutta Bench :
"1. Whether on the facts and in the circumstances of the case the Income-tax Officer was justified in making an addition of Rs. 27,445 and of Rs. 4,740 on account of alleged shortage of oil yield and oil cake yield ?
2. Whether there was any material for allowing refraction at the rate of 2% and taking the oil yield at 32% and oil cake at 66% in this case ?"
The assessee, Messrs. Harakchand Radhakisan, is a registered firm doing business in oil and rice at Jorhat, Narayanpur and Tinsukia. The assessment year in question is 1953-54 and the corresponding accounting year is Sambat year 2009. According to the accounts submitted by the assessee the mustard seeds available for crushing were 32,656 maunds, the oil yielded after crushing was 9,472 maunds and the oil cakes yielded were 20,814 maunds. The income-tax Officer was of the opinion that the yield of oil and oil cakes from the crushing of the mustard seeds was below the normal. He, accordingly, after allowing a refraction of 2% held that the production of oil should be 32% and that of the oil cakes 66%. Calculating on this basis the oil yield should have been 10,241 maunds and production of oil cakes should have been 21,762 maunds. On this basis there was a shortage of 499 maunds of oil. He added a sum of Rs. 27,445 as the price of this unaccounted for oil at the rate of Rs. 55 per maund. He further added a sum of Rs. 4,740 as the price of the 948 maunds of oil cakes at the rate of Rs. 5 per maund. On appeal the Assistant Commissioner affirmed the decision of the Income-tax Officer. Before the Appellate Assistant Commissioner the assessee contended that the above rates were too high and that in the subsequent year when the milling was done in the presence of an officer of the Central Excise Department, production of oil and oil cakes was found to be much less. The Appellate Assistant Commissioner brushed aside his contention on the ground that there was no evidence to show that the seeds were of the same quality. He further observed that on the other hand he found that the rates applied by the Income-tax Officer were the same as were applied by the Income-tax Officer in respect of the assessment for the immediately preceding year. When the matter went up in appeal to the Income-tax Appellate Tribunal, the Tribunal affirmed the assessment made by the Income-tax Officer on the ground that the estimates had been made on the rates usually adopted in this part of the country.
The contention of the assessee is that the refraction allowed at the rate of 2% and taking the oil yield at 32% and oil cake at 66% are not supported by any material on the record and thus the Income-tax Officer is not justified in making an addition of Rs. 27,445 and Rs. 4,740 on account of the alleged shortage of oil yield and oil cake yield respectively.
The contention raised by the counsel for the department is that there was material before the Income-tax Officer to come to the conclusion that the yield shown by the assessee were below normal and the sufficiency or otherwise of the material is not a question of law which can be referred to this court under section 66(2) of the Income-tax Act.
It has now been well settled by a series of decisions of the Supreme Court under what circumstances this court can interfere with the assessment made by the Income-tax Officer under section 66 of the Indian Income-tax Act. In the case of Liquidators of Pursa Ltd. v. Commissioner of Income-tax it was laid down as follows :
"Although the High Court will not disturb or go behind the finding of fact of the Tribunal, where it is competent for a Tribunal to make findings on fact which are excluded from review, the appeal court has always jurisdiction to intervene if it appears either that the Tribunal has misunderstood the statutory language - because the proper construction of the statutory language is a matter of law - or that the Tribunal has made a finding for which there is no evidence or which is inconsistent with the evidence and contradictory of it."
In the case of Dhirajlal Girdharilal v. Commissioner of Income-tax, it was held that it was well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. In that case the question which were asked to be referred to the High Court for opinion were as follows :
"1. Whether on the facts and circumstances of the case the assessee was doing business in shares in the account year; or,
2. Whether there is any material on record on the basis of which it could be held that the assessee was doing the business in shares in the account year."
Both the Tribunal and the High Court held that no question of law arose. The Supreme Court reversed the decision of the Tribunal and held that the question of law arose in the case and remanded the case to the High Court with the direction that it should ask the Tribunal to state a case and to refer to it the following question of law :
"Whether the finding of the Tribunal is not vitiated by reason of its having relied upon suspicions and surmises not supported by any evidence on the record or upon partly inadmissible material ?"
In the case of Mehta Parikh & Co. v. Commissioner of Income-tax, it was held that the facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. In this case certain high denomination notes were encashed on the eighteenth day of January, one thousand nine hundred and forty-six and the question was whether they was any material to justify the assessment of a sum of Rs. 30,000 from out of the sum of Rs. 61,000 representing the value of the high denomination notes encashed on that day. The supreme Court reversing the decision of the High Court held that there was no material justifying addition of Rs. 30,000 to the income and profits of the assessee.
The matter was again summed up in the following terms in the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax :
"(1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under section 66(1).
(2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final its decision as to the legal effect of those findings is a question of law which can be reviewed by the court.
(3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse.
(4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact."
Dealing with the case under the Bihar Sales Tax Act which Act was held to be in pari material with the Income-tax Act, the scope of the power of the High Court in a reference has been laid down by the Supreme Court in the case of Raghubar Mandal Harihar Mandal v. State of Bihar, as follows :
"It is well settled that the jurisdiction of the High Court in the matter of income-tax references is an advisory jurisdiction and under the Income-tax Act the decision of the Tribunal on facts is final, unless it can be successfully assailed on the ground that there was no evidence for the conclusion on facts recorded by the Tribunal or the conclusion was such as no reasonable body of persons could have arrived at. It is also well settled that the duty of the High Court is to start with the statement of the case as the final statement of the facts and to answer the question of law with reference to that statement."
The counsel for the assessee has referred to the following observations in the case of Omar Salay Mohammed Sait v. Commissioner of Income-tax :
"We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives as its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or one improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court."
Though these observations are made in an appeal from the order of the Income-tax Appellate Tribunal, Madras, the principles apply with equal force to a case of reference under section 66(2) of the Income-tax Act.
Section 13 of the Income-tax Act provides as follows :
"Income, profits and gains shall be computed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee :
Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computations shall be made upon such basis and in such manner as the Income-tax Officer may determine."
The Tribunal in its order has observed that after rejecting the results as per books the Income-tax Officer made an addition of Rs. 27,445 and of Rs. 4,740 and that the assessees books disclosed a total refraction of 6.4% which was not established. The order of the Tribunal is mainly based on the rates usually adopted in this part of the country. The Assistant Income-tax Commissioner has based his order on the circumstance that the rates applied by the Income-tax Officer were the same as were applied by his predecessor in respect of the assessment for the immediately preceding year. The Income-tax Officer has based his assessment on the conjecture that the refraction should be allowed at the rate of 2%, the oil yield should be 32% and the oil cake production should be 66%. There is no material which would justify such an inference. No scientific data was before any of the income-tax authorities from which it could be inferred that the normal yield of the oil should be 32% and of the oil cake 66% and that the allowable refraction should be 2%. Even there was no material on the record to show on what basis the predecessor of the Appellate Assistant Commissioner had applied the same rates in respect of the assessment for the immediately preceding year. There was no material to show what was the quality of the seeds used in the previous year. The Appellate Assistant Commissioner rejected the results of the subsequent year on the ground that there was no material to show that the seeds were of the same quality, but he has relied upon the rates fixed by his predecessor at the previous year without there being any material to show that the quality of the seeds in the year immediately preceding the assessment year was the same as that of the assessment year. The Appellate Tribunal has assumed that that was the rate prevalent in the locality for which there was no material. The Income-tax Officer has also not rejected the account books. The quantity of the seeds crushed as disclosed by the account books of the assessee is held to be correct by the Income-tax Officer. We do not find any material from which the exact percentage of the oil and oil cake can be estimated.
Mr. Chaudhuri for the department has very strenuously contended that the assessment of the previous year is a material which can be relied upon by the department and as in the present case the Appellate Assistant Commissioner in his appellate order has relied upon the rates applied by his predecessor in the year immediately preceding the assessment year, it cannot be said that the decision of the Income-tax authorities is based on no material. He has referred to the case of Gopinath Naik v. Commissioner of Income-tax. He has particularly referred to the following observation at page 297 of the report :
"On the other hand, I see no objection in the Income-tax Officer or the Assistant Commissioner acting upon the assessment for the previous year if no better evidence is forthcoming. An Income-tax Officer, and for the matter of that, an Assistant Commissioner is not bound to accept either the correctness of the return or the genuineness and completeness of the account-books produced before him or the truth of the evidence produced by the assessee. If he has ground for believing that such evidence is untrustworthy, he can certainly reject it. Having rejected such evidence it is open to him to pursue the enquiry further and take more evidence which he considers necessary; but he is bound to do so. In the absence of any better evidence he is certainly entitled to fall back on the assessment of income made during the previous year even though that assessment might have been the best judgment estimate. The fact that during the previous year the income was assessed on a certain figure is certainly some evidence on which he can proceed, even independently of any presumption of continuity. If the assessee fails to produce satisfactory evidence, he fails to displace the previous years estimate which is certainly admissible against him."
These observations only point out that in cases where the amount books have been rejected for the purpose of ascertaining the income for the assessment year, it is open to the Income-tax Officer to rely upon the estimate of income made in the preceding year. But to my mind these observations do not apply to the circumstances of the present case. In the first place the Income-tax Officer has not rejected the account books of the petitioner. In the second place, he has not estimated the income of the assessee on the basis of the previous years assessment, but he has assumed the rate of yield from the oil seeds on a certain percentage. On the basis of the same percentage the yield was considered normal by his predecessor in the previous year. The percentage of yield may depend upon various factors such as the quality of the seeds and the condition of the machinery collected for crushing. In the absence of any material to show that the quality of the seeds in the previous year can be no material for ascertaining the actual yield in the year of assessment. Moreover, as I have already observed, the Appellate Assistant Commissioner has referred to the order of his predecessor. He has not referred at all to the assessment order of the Income-tax Officer for the year immediately preceding the year of assessment. Mr. Chaudhary contends that the entire file of assessment of the assessee for the previous year is placed before the Income-tax Officer at the time of making assessment and when the Appellate Assistant Commissioner refers to the order of his predecessor, he must have looked into the assessment file for the preceding year. As I have already said the orders passed by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal are all based on different reasonings and different set of materials. We do not find any evidence on the record to justify the assessment. The order of the Income-tax Officer estimating the yield of the oil and oil cake at 32% and 66% respectively and allowing a refraction of 2% is based purely on conjecture. We, accordingly, answer the two questions in the negative. The assessee is entitled to his costs which we assess at Rs. 100.
S.K. DUTTA J. - I agree.
Questions answered in the negative.